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How to Build Business Credit

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Last editedFeb 20223 min read

Just like individuals, businesses have their own credit reports. A business credit report shows lenders how well your business will be able to repay a loan, making it a necessity for financing. Yet many start-ups are new to the business world and haven’t had time to build a good credit record. Here’s how to build business credit quickly and effectively.

Why is a good business credit score important?

When you’re just starting out, you might not have sufficient cash flow to cover your operational costs. New businesses need capital for acquiring inventory and purchasing necessary machinery. Financing from lenders is one of the most common ways to acquire this start-up capital, in the form of a personal or business loan.

It’s not just lenders who look at a business credit report either. Suppliers, government agencies, utility companies and insurance agents will also look at your score before determining whether to extend a contract. Your business credit score will also determine the interest rates you receive, along with collateral, fees, and other financing terms. A positive business credit report shows you can be trusted and taken seriously.

How to build credit: step by step

Now that we’ve covered why it’s so important to build business credit, here’s how to do it in five easy steps.

Step 1: Choose the right business structure.

One of the biggest mistakes that new businesses make is failing to separate personal and business finances. Before you launch your new company, think about its business structure. Limited companies and limited liability partnerships (LLPs) are considered separate entities to your personal credit profile, which means you’ll be starting with a blank slate. For the purposes of establishing business credit, this is usually the best option. With sole traders and partnerships, your personal and business profiles are intertwined.

You should also get a business phone number and email address before registering your new company with Companies House.

Step 2: Update your details with credit bureaus.

Now that you’ve established your business name and structure, it’s time to raise its profile with the main credit bureaus. At minimum, you should have business credit reports on file with Dun & Bradstreet and Experian.

Register for a D-U-N-S number with Dun & Bradstreet. This is a unique nine-digit identifier that lenders can use to check your business credit score, often necessary when applying for loans. D-U-N-S stands for data universal numbering system, a method for tracking and verifying millions of businesses worldwide.

When you meet obligations to your vendors, they can report your payment history to the appropriate credit agencies, which will in turn start to build a positive credit report.

Step 3: Open a business bank account and line of credit.

Another major facet of establishing a good business credit score is to set up a bank account. This goes hand in hand with separating your personal and professional finances. A business account builds your reputation with the bank, who will view you as an existing client when you need to apply for credit.

It’s also a good idea to open up at least one business credit card account. However, be sure that the creditor reports to major credit agencies first so that you can use your on-time repayments to build a positive score. One thing to note is that overextending your lines of credit can lower your score, so don’t max your card out.

Step 4: Pay your bills on time.

It should go without saying that one of the best ways to build business credit is by paying your bills on time. Potential business partners need to know that you uphold contracts, and vendors need to know that you pay invoices on time. Try to create between three and five secure lines of credit with vendors and suppliers, ensuring that you pay all invoices diligently. If your creditors regularly report to the credit agencies, this will swiftly build a positive credit score.

Unfortunately, even a single late payment could result in a negative report. The later the payments or defaults reported, the harder it will be to secure future financing from lenders.

Step 5: Monitor your business credit score.

Finally, remember that building business credit is not a one-time operation. Credit reports grow and change over time, so every payment, made or missed, matters. You should also take time to perform a regular business credit check to search for errors in your file. It’s not uncommon for defaults or judgments to be reported in error.

If you spot any discrepancies, you can file a dispute with the credit bureau to clear it up. A credit monitoring service can do this on your behalf, so that you spot negative points on the report before a lender runs a business credit check.

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